Is it time to sell Wesfarmers Ltd, Rio Tinto Limited and National Australia Bank Ltd?

Wesfarmers Ltd (ASX:WES), Rio Tinto Limited (ASX:RIO) and National Australia Bank Ltd (ASX:NAB) are offering big dividend yields, but is that enough to justify a buy rating?

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If you're searching for a big fully franked dividend to smash low-interest rates, chances are you'd have run the ruler over Wesfarmers Ltd (ASX: WES), Rio Tinto Limited (ASX:RIO) or National Australia Bank Ltd (ASX:NAB) at least once or twice.

And rightly so…

Not only are they three of the biggest Australian businesses included in the S&P/ASX 20 (Index: ^AXTL) (ASX: XTL), they're currently forecast to yield grossed-up dividends well in excess of 5%.

Wesfarmers

Wesfarmers is an exceptionally reliable dividend payer. However, whilst its Coles supermarkets division has managed to survive the ongoing price war with local and foreign rivals so far, the overwhelming consensus is for growth in the Australian grocery market to slow considerably. If slower growth and lower margins become a reality, personally I doubt Wesfarmers will be able to command the premium to the market that it currently does. Indeed, I've put a fair value estimate on Wesfarmers shares which is significantly less than the current market price above $40.00.

Rio Tinto

Over the next two years, profits from Australia's largest iron ore miner, Rio Tinto, are forecast to fall significantly. Undoubtedly, this is a result of the steep falls in key commodities such as iron ore, copper and coal. Whilst Rio Tinto may survive a prolonged lull in commodity prices (as many analysts are forecasting) thanks to its low breakeven prices, long-term investors are reminded that survival does not equal market-beating investment returns.

National Australia Bank Ltd

Earlier this week I wrote an article which detailed three ways an investor could go about valuing NAB's shares with varying levels of difficulty. NAB is the most accident-prone bank amongst Australia's 'Big Four'. This has ultimately led to its share price significantly underperforming its peers. Whilst its exit from the U.K. is good news for long-term shareholders, investors should look to buy shares below $25 each. Currently priced around $33.50, I think NAB is a sell.

Motley Fool contributor Owen Raskiewicz has no position in any stocks mentioned. Owen welcomes your feedback on Google plus (see below), LinkedIn or you can follow him on Twitter @ASXinvest. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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